Prasa may seek billions in private sector funds

by Alistair Anderson and Mark Allix,
November 22 2012, 06:22

Alistair Anderson and Mark Allix

Prasa may seek billions in private sector funds

THERE is an R83bn shortfall in the funding for the biggest upgrade of South Africa’s passenger rail transport in decades, but the Treasury and the Passenger Rail Agency of South Africa (Prasa) have not agreed where the funds will be found.

Prasa CEO Lucky Montana expects that by the end of the month, tenders to buy 7,226 coaches costing R123bn over the next 20 years will be concluded.

This is despite Transport Minister Ben Martins this week confirming in Parliament that the Treasury had budgeted to give Prasa R40bn over the next decade, with payments of R4bn each year starting next year.

In response to a question from Democratic Alliance MP Ian Ollis, Mr Martins said the remaining R83bn would have to be sought from the private sector.

Mr Ollis said this week that R83bn represented the bulk of the contract and having to find a new funder would put the timing of the deal under pressure.

Mr Montana said on Wednesday that Prasa was "happy to get R40bn and would look to the private sector later on if need be".

The R40bn will fund the first 10 years of the renewal programme. The number of coaches to be built in the decade has not yet been finalised, despite tender procedures being at an advanced stage and bidders expecting that R123bn will be spent.

"As it stands our balance sheet is weak, so to attract private investors is difficult. We estimate the first phase of the project, which will take 10 years, will cost R61bn," Mr Montana said.

"When the tender process is over at the end of the month, we may ask for more than R40bn. It depends on the final numbers the winning bidder agrees to."

Treasury spokesman Jabulani Sikhakhane said that the February budget review had indicated that Prasa would spend more than R80bn over 20 years.

"They may have revised that number. You must ask Prasa about it," Mr Sikhakhane said.

Mr Montana said R80bn "may have been budgeted for at some point" but Prasa believed the fleet renewal would cost more than R120bn, and there would be other tenders for related projects.

"Our scientific research concluded at R123bn. This is not a rough estimate. The bidders are bidding for the entire contract," he said. "But I can see another company building other trains and improving the actual railways in the future because so much has to be done to fix rail in South Africa."

One of seven bidders, the Canadian company Bombardier, said on Wednesday it had noted that the government had set a R40bn affordability cap, but declined to comment in the context of its tender process.

"A full and detailed discussion on the impact of this announcement on the programme roll-out will no doubt take place in the negotiations with the preferred bidders once that decision has been made," Bombardier said.

Swiss rail company Stadler — involved in Dudula Rail, a consortium with ABB SA — said the tender was still attractive, even if fewer coaches would be manufactured. "Obviously the reduced budget will allow Prasa to buy less trains than forecast, but still the overall amount available for this contract is absolutely interesting for any bidder," Felice Massaro, Stadler’s business development vice-president, said.

"The bidders have not received official communication about reduction of the available budget and therefore the tender process is based on the original budget.

"I assume that this issue about the cap will be discussed with the preferred bidder once appointed. The consequence will be simply a reduction of the deliverables over the period of the contract."

In this article

THERE is an R83bn shortfall in the funding for the biggest upgrade of South Africa’s passenger rail transport in decades, but the Treasury and the Passenger Rail Agency of South Africa (Prasa) have not agreed where the funds will be found.

Prasa CEO Lucky Montana expects that by the end of the month, tenders to buy 7,226 coaches costing R123bn over the next 20 years will be concluded.

This is despite Transport Minister Ben Martins this week confirming in Parliament that the Treasury had budgeted to give Prasa R40bn over the next decade, with payments of R4bn each year starting next year.

In response to a question from Democratic Alliance MP Ian Ollis, Mr Martins said the remaining R83bn would have to be sought from the private sector.

Mr Ollis said this week that R83bn represented the bulk of the contract and having to find a new funder would put the timing of the deal under pressure.

Mr Montana said on Wednesday that Prasa was "happy to get R40bn and would look to the private sector later on if need be".

The R40bn will fund the first 10 years of the renewal programme. The number of coaches to be built in the decade has not yet been finalised, despite tender procedures being at an advanced stage and bidders expecting that R123bn will be spent.

"As it stands our balance sheet is weak, so to attract private investors is difficult. We estimate the first phase of the project, which will take 10 years, will cost R61bn," Mr Montana said.

"When the tender process is over at the end of the month, we may ask for more than R40bn. It depends on the final numbers the winning bidder agrees to."

Treasury spokesman Jabulani Sikhakhane said that the February budget review had indicated that Prasa would spend more than R80bn over 20 years.

"They may have revised that number. You must ask Prasa about it," Mr Sikhakhane said.

Mr Montana said R80bn "may have been budgeted for at some point" but Prasa believed the fleet renewal would cost more than R120bn, and there would be other tenders for related projects.

"Our scientific research concluded at R123bn. This is not a rough estimate. The bidders are bidding for the entire contract," he said. "But I can see another company building other trains and improving the actual railways in the future because so much has to be done to fix rail in South Africa."

One of seven bidders, the Canadian company Bombardier, said on Wednesday it had noted that the government had set a R40bn affordability cap, but declined to comment in the context of its tender process.

"A full and detailed discussion on the impact of this announcement on the programme roll-out will no doubt take place in the negotiations with the preferred bidders once that decision has been made," Bombardier said.

Swiss rail company Stadler — involved in Dudula Rail, a consortium with ABB SA — said the tender was still attractive, even if fewer coaches would be manufactured. "Obviously the reduced budget will allow Prasa to buy less trains than forecast, but still the overall amount available for this contract is absolutely interesting for any bidder," Felice Massaro, Stadler’s business development vice-president, said.

"The bidders have not received official communication about reduction of the available budget and therefore the tender process is based on the original budget.

"I assume that this issue about the cap will be discussed with the preferred bidder once appointed. The consequence will be simply a reduction of the deliverables over the period of the contract."

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